Indians' share in world gold sales up

Nidhi Nath SrinivasOct 21, 2006, 02.26am IST

NEW DELHI: The sale of small bars and coins by Indian banks at your doorstop is moving markets. Already the world's largest consumers of gold jewellery, Indians have bought 43% of the gold coins and small bars sold worldwide during Q2 '06. This is a record high because in the last 10 years India usually has had a 35% share of the global retail investment market.

However, high prices have led to a significant fall in the volume of jewellery being bought by Indians. Demand in India, the world's largest consumer of gold in tonnage terms, fell by 43% year-on-year.

According to research by the World Gold Council, an industry body financed by leading producers, Indian appetite for gold investment has grown in line with incomes. "But also, importantly, in response to deregulation and improved distribution networks as a number of retail banks now act as outlets for small bars and coins," the report has said.

Jewellery demand has accounted for 77% of total gold demand since '01, and was worth some $40bn last year. Trends in the jewellery sector are, thus, extremely important to the overall health of the gold market.

According to WGC, the value of gold jewellery sales rose to a record $11.4bn in the quarter ended September '06, a YoY rise of 12%, supported by the higher gold price. However, sales volumes suffered from the coincident rise in price volatility. So, when price volatility spiked to 27% in Q2, from an already elevated 22% in Q1, some consumers held back from making purchases. The result was a 24% year-on-year drop in demand in volume terms.

WGC calculations show that the impact of rising volatility differed across regions. The most obvious reaction was from jewellery buyers in India and the Middle East, where gold is traditionally sold by weight and price according to the prevailing international market price plus a small margin.

"The volume of sales also fell heavily in Saudi Arabia (-32%), although this is partly attributable to the negative wealth effect of March's stock market crash," it has said.

In China, where price volatility has less impact on purchases, demand eased off by just 2% — equivalent to a 40% rise in value terms. "This robustness reflected a combination of factors, including growing expectations of a further rise in the gold price, strong growth in rural and 'second-tier' city economies, as well as the continued growth of the K-gold market (designer 18 carat gold jewellery different than the traditional 24 carat gold sold in China)," the WGC has said.

Trends in the Western world, which accounts for a much smaller share of demand, were similar, with the volume of sales falling by 10%, 12% and 9%, respectively, in the US, Italy and the UK.

Despite this blip, WGC is bullish on the long-term outlook for jewellery demand, thanks to a combination of rising wealth levels, favourable demographics and attitude changes in the world's major gold consuming countries. "These changes mean that a growing number of women are falling into the potential gold-buying market," according to the WGC report.